Sudan - Highway Project

RESTRICTED Report No. P-1113 FILE COPY This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE DEMOCRATIC REPUBLIC OF THE SUDAN FOR A HIGHWAY PROJECT July 19, 1972   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEKOCRATIC REPUBLIC OF THE SUDAN FOR A HIGHWAY PROJECT 1. I submit the following report and recommendation of a proposed development credit to the Democratic Republic of the Sudan for the equivalent of $7.0 million on standard IDA terms to help finance a Highway Project. PART I - THE ECONOMY 2. An economic mission visited the Sudan in November and December 1971. Its findings and the draft of its report were discussed with the Government in April and early May. Meantime in March the Government had announced that a settlement had been reached with the dissidents in the south of the country who had been in rebellion almost since the Sudan gained independence in 1956. This important turn of events is too recent for either the Government or the Bank to be able to take the measure of its likely impact on the future economic development of the countryo However, a further mission is planned for later this year to make an initial assessment. The report on the economic development and prospects of the Sudan (AE-27 of June 9, 1972) has been distributed to the Executive Directors separately. Its principal findings are summarized below. Basic data are attached as Annex II. 3. The Sudan is the largest country in Africa (see Map 3933 attached) but among the poorest. The estimated per capita GNP is about $110. There is consider- able unused potential, both of agricultural land and water. The Sudan already has the best developed irrigation system in Africa outside of Egypt, but much can still be done in this field. While much of the country is arid desert, there is considerable scope for expanding rainfed farming. The Sudan is already an import- ant producer of long and extra-long staple cotton, gum, sesame and groundnuts. Its potential for livestock products has not yet been exploited. There is some poss- ibility of mining (chrome, iron ore and copper) but this requires more thorough investigation. 4. The public sector dominates all economic activities in the Sudan. It embraces all modern irrigated agriculture, most of transport, virtually all power and water supply and a significant proportion of industry, commerce and finance following nationalization in May 1970 of a number of banks, insurance companies and commercial and manufacturing firms. Over 50 percent of GDP is produced within the public sector. However, there are indications that the Government wants the private sector to resume an important economic role and the Government has confirmed its intention to compensate the owners of the properties expropriated. Discussions with the owners are in progress* It is reported that agreement has been reached with the Credit Lyonnais of France for its share in the nationalized Nilein Bank. The Government is keeping us closely informed of the progress of negotiations towards settlement of the outstanding claims. 5. The Sudan embarked on a limited amount of development planning in 19h6, and there were two five-year plans up to 1956. These plans were not based on a systematic survey of the natural and human resources of the country, and represented no more than a compilation of public sector projects proposed by various ministries. The first effort at comprehensive development planning was  the Ten-Year Plan, FY1962-71. The underlying strategy of the Plan was to concentrate available capital and skilled manpower on creating a modern economy rather than in spreading them over the mass of traditional agriculture and handicrafts. The phasing of public sector investment was determined initially by a number of large projects which had already been started or approved at the commencement of the Plan. In the first four years of the Plan, some of these major projects - particularly the Roseires Dam, the Kashm el Girba Dam and the first phase of the associated irrigation and agricultural works and the Sennar hydro-electric project - were executed. The implementation of a further phase of the Plan was interrupted by the October 1964 revolution and the Plan itself was virtually abandoned after the revolution, partly owing to unsettled political conditions and partly for lack of sufficient well prepared projects such as those mentioned above. However, she Plan's quantitative targets continued to provide guidelines for the preparation of annual developmental budgets during the period Ffl966-70. 6. After the May 1969 revolution, a new Ministry of Planning absorbed the Economic Planning Section of the former Ministry of Finance and Economy. A new Plan covering the period July 1971 - June 1975 was launched in July 1970. The Plan aims at increasing the gross domestic product at an average annual rate of 7.6 percent. The biggest contribution to the increase in GDP is expected to come from agriculture and livestock, transport and communications. The share of the directly productive sectors in GDP is projected to increase from 61 to 67 percent. The Plan projects investment at about Ls 427 million of which Ls 257 million will be in the public sector and the balance private. The public. investment program is assumed to be financed about equally from foreign and domestic sources. 7. The launching of the new Plan came at the end of a five-year period during which the economy showed little growth. This was primarily due to the depressed level of investment, both public and private. In addition to low growth, the economy has been suffering from excessive monetary expansion to cover Government deficits. While the Government has been successful in achieving a high rate of growth of revenue, the rise in recurrent expenditure has absorbed all of it, and development expenditure has remained stagnant. Prices have risen - reflecting inflationary pressures - and the balance of payments has deteriorated owing to rapid growth of imports and a progressive decline in net capital inflows. 8. Since the present Plan has been in operation for just about two years, there can be only a limited assessment of its results. During its first year, however, investment in the public sector amounted to only Ls 27 million, and there are indications that no significant improvement has taken place in the second year. Hence if the Plan target for public sector investment is to be realized, arnnual investment in the last three years of the Plan will have to be stepped up to an average level of about Ls 70 million - a prospect which appears highly unlikely. The principal factors causing a slowdown in investment are a short-age of nasources and inadequacies in the preparation and implementation of projects. 9. Tile present state of economic stagnation is by no means beyond improve- irent if the Government takes appropriate measures to curtail expenditures, 1:11rease revenues and export eamnings, and reactivate the private sector. The  -3- Sudan has a great potential in the fomr of land on which a variety of crops can be grown. Out of an estimated potentially cultivable area of about 120 million feddans (125 million acres), no more than 11 million feddans or 9 percent of the total area is cropped in an average year. The Sudan also has considerable scope for expanding irrigated agriculture, since it is presently using only about one-half of the Nile waters allocated to it under the 1959 Agreement with the Arab Republic of Egypt. With an estimated population of only 15.8 million, there is no pressure on the land. Indeed, the Sudan faces the unusualproblem of being short of farm labor, particularly during the harvest seasons. Although there is still a shortage of qualified senior officials in a number of ministries, the Sudan has a body of civil servants whose competence in some fields, notable irrigation and agriculture, is substantially greater than that found in many other developing countries. lOo The recent economic mission estimated that, during the last three years of the present Plan (i.e0 July 1973 to June 1975), total investment coulci amount to about Ls 200-220 million, divided about equally between the public and private sectors. Including investment during the first two years, total invest- ment during the Plan should lead to an increase in GDP at the rate of 4 percent a year. In order for public sector investment to reach Ls 100-120 million total over the next three years, and on the basis of the Plan's assumption that about 50 percent of it will be financed by foreign aid, it will be necessary for the public sector to generate savings amounting to about Ls 50-60 million0 While investment on this scale would represent a significant increase over the level achieved during the first two years of the Plan, it should be noted that it is well below the level of almost Ls 40 million a year attained during the first half of the 1960s. The mission estimates that public sector enterprises could generate savings of about Ls 20 million and that the Central Government should provide the balance of about Ls 30-40 million or an annual average of Ls 10-13 million. This is well within the Sudan's capacity, but will require that there be a ceiling on recurrent expenditure in each of the remaining three years. The Government is aware of the gravity of the present financial situation. Since financial and administrative constraints preclude the possibility of a sharp rise in public sector investment in the short run, the developmental role of the private sector will be critical in realizing even the relatively lower investment projected by the mission. 11. While existing commitments of external aid do not appear to be out of line with the Sudan's needs, most of this aid has yet to be allocated to specific projects and hence it is likely that disbursements, especially disbursement of aid from the Eastern Bloc , will not take place soon. In mid-1972 official aid commitments from all sources amounted to Ls 108 million equivalent: Eastern Bloc and Mainland China - Ls 71.0 million; Arab Bilateral - 19.1 million; Bank and IDA - 9.6 million; Western Bilateral - 8.1 million. It is estimated that total disbursements from existing commitments may amount to no more than Ls 45 million over the remaining three years of the Plan. During this period, however, the Sudan will need an inflow of between Ls 50 and 60 million and thus there is a need for additional commitments for this purpose* To ensure a continuous inflow in the initial years of the new planning period beginning in July 1975 the Sudan will need to obtain further new commitments in the next year or two. The rehabilita- tion and development needs of the South consequent on the recent settlement ending the long-standing internal conflict in the three southern provinces have yet to be determined, but clearly they will give rise to the need for significant added aid commitments.  - h - 12. In recent years the Sudanese balance of payments has generally been characterized by a deficit on both the merchandise and services accounts with the result that the balance on current account has been negative; in the last ten years the deficit has averaged about Ls 19.0 million annually0 Exports of items other than cotton have been sluggish while imports have risen owing to the inadequacy of domestic food production and the limited range of local manufacturing industry. The problem has been aggravated to some extent by'the closure of the Suez Canal, which raised the import bill and reduced export earnings. Unsettled political conditions and the failure to maintain the momentum of development have resulted in a steady decline in the net inflow of long-term public capital, which actually become negative in FY1971. These factors led to a rapid depletion of foreign reserves, and forced the Sudan to contract short-term debt on unfavorable terms. 13. The Sudan has recently agreed with the International Monetary Fund on a stand-by arrangement of 40 million SDRs and a stabilization program which should help in restoring internal and external financial balance as well as the maintenance of a realistic exchange rate. The possibility of curtailing military expenditure might improve the position and help to focus effort on economic development. Another round of discussions with the IMF took place in June as preparation of the FY1973 budget got underway. 14. The Bank mission's assessment of the export potential of the major commodities as well as the requirements for imports - particularly capital and intermediate goods - suggests that the cumulative deficit on the current account over the last three years of the Plan could amount to a little over Ls 80 million. Amortization of debt will amount to about Ls 45 million. In addition, it is desirable that the reserves be increased to the aquivalent of at least two months' imports, which will require some Ls 20-25 million. Thus, the total required capital inflow over the next three years would be about Ls 150 milliono Every effort needs to be made to fill this gap by obtaining official external financial assistance on suitable terms and by encouraging foreign private capital inflows. 15. At the end of 1970, the Sudan's external public debt amounted to US$379 million equivalent, including an undisbursed amount of US$95 million. Interest and amortization payments in that year amounted to $30 million and absorbed 11 percent of export earnings. The debt service ratio on this debt is likely to reach about 16 percent by 1975 and remain at that level in the following five years. The Sudan has recently contracted some short-term debt, of which complete deta'ils have yet to be obtained and compensation to the foreign oumers of nationalized firms will add further to the Sudan's payment obligations. Thus, precisely when it is again able to increase its development effort, the Sudan will already be burdened with a level of debt service even higher than at present. Although it is making efforts to increase its foreign exchange earmings by diversifying exports and by import substitution, there are only limited possibilities. These factors and the overall poverty of the country require that the Sudan be able to obtain the major proportion of external assistance on concessionary terms. In view of the continued shortage of domestic resources, external assistance will be required to cover some of the local costs of projects.  PART II - BANK GROUP OPERATIONS 16. Since the Sudan became independent in 1956, the Bank Group has remained the countryts largest single source of external assistance. Beginning in 1958, Bank Group lending to the Sudan has totalled $166.75 million and has helped finance the Managil Irrigation Project, the Roseires Dam on the Blue Nile, two Railway Projects, a Power Project, an Education Project and a Mechanized Farming Project. From 1968 to 1972 there was no new lending mainly because of unsettled political and economic conditions in the country. However, with the recent improvement in political stability and some evidence that the Goverrment may begin seriously to address itself to its economic and financial problems, we plan to resume more active operations. A beginning was made on April 25, 1972 when the Executive Directors approved a credit of $11.25 million for the Second Mechanized Farming Project and the presently proposed road project is the next step. Annex I contains a summary statement of Bank loans, IDA credits and IFC investments as of June 30, 1972 as well as nQtes on the implementation of on-going projects. 17. The economic report includes detailed analysis of the major economic sectors and identifies a number of high priority projects, some of which may be suitable for Bank Group lending. The recent discussions with the Government have led to a clearer understanding of what will have to be done for the Sudan to regain the path to effective development., The settlement of the southern problem is expected to increase the development requirements of the country considerably. The rehabilitation needs of the southern Sudan are not yet fully known. They will be assessed by the staff in the near future, and high priority projects in the Southern Region will be identified and prepared for IDA financing. Most of the Sudan's 2,500 Km of gravel roads are located in the southerm provinces and the proposed Highway Project provides for the maintenance and betterment of these roads, thus meeting one of the pressing needs of the Southern Region. For the country as a whole, however, it is evident that our lending strategy should continue to emphasize agriculture and transportation, which hold the key to increasing both production and exports. We have for some time been studying the proposed Rahad Project, a major irrigation scheme designed to bring about 300,000 feddans of additional area under irrigated cultivation using water from the Roseires Reservoir, financed by an earlier loan and credit. After re-appraisal, occasioned by changes in Government and modifications of the technical details,an agreed version of this project is likely to be ready for financing in FY73. As the foreign exchange cost of the project will be $55-60 million, and we L above the availability of IDA funds for the purpose, the possibilities of obtaining additional financing from others are being explored. 18. The Sudan relies essentially on Sudan Railways for long-distance transportation. The railways' existingtrack capacity is potentially adequate, but inefficient operations, combined in particular with a critical shortage of effective motive power and a poor commmunications network, have created a situation in which the railway is failing to meet all demands, especially on the busiest route to Port Sudan. New investments, principally for locomotives, rolling stock, and telecommunications, would be needed to enable the railway to meet the demands of the expanding economy, but it is essential  -6- that this should be accompanied by significant improvements in operating efficiency. Accordingly, it is proposed that a Third Railway Project, which may be appraised towards the end of this year, should contain a substantial element of technical assistance. 19. The concentration on railway development is understandable in view of the long distances between the main producing and consuming areas and the sea, but it has resulted in road development and maintenance being neglected. A system of reliable, all-weather roads to complement the railway is essential. The highway project now proposed wilI constitute the first step towards meeting this essential need. PART III - THE TRANSPORTATION SECTOR General 20. A reliable transport system capable of linking areas of potential production and consumption is urgently needed to promote economic development in the Sudan. The railway system consists of about 4,800 Km of single track, of which the line connecting Port Sudan to Khartoum, serving the heart of the fertile agricultural region, is the most important and carries nearly 60 percent of freight traffic on 17 percent of the network. Roads serve primarily as feeders to the railwayo The average distance crops must travel to the railways by road has been increasing over the last 15 years because the area cultivated with main crops has grown considerably. River transport on parts of the Nile system supplements the railways and with the recent settlement of the southern problem this mode of transport is likely to become more important in serving the southern areas of the country. Aviation has at present only a small share of total transport, but is likely to become increasingly important for rapid passenger service because travel distances are long and altermative modes of transport are much slower. The only important seaport is Port Sudan. Increase in traffic because of more efficient railway operations may strain its capacity and proposals to improve port facilities are being considered by the Government. 21. Lack of transport coordination has not been a major problem in the Sudan so far. However, now that the Goverrnent is emphasizing transport development and expects to allocate investments totalling $64 million to this sector in the next three years, further development of transport infrastructure needs to be carefully planned and coordinated. Highways 22. The highway network in the Sudan is in an early stage of development and road density is low even by African standards. The network totals about  -7- 18,500 Km of roads and tracks of which less than 2 percent are bituminous paved; 13 percent are gravel surfaced and 85 percent are merely earth tracks. Nearly all paved roads are in the vicinity of Khartoum. Most gravel roads are in the southern provinces where lateritic material is available. These roads, constructed to low standards between 1920 and 1938, have not been maintained with the result that they badly need betterment followed by improved maintenance. Earth tracks cut by vehicles moving cross-country are mostly impassable in the rainy season, June to September. 23. The Department of Roads (DOR) is in charge of about 5,500 Km of trunk roads, local governments are responsible for about 13,000 Km of lower class roads and tracks and the Mechanized Farming Corporation (MFC) maintains about 300 Km of roads built for its development schemes. The Central Government's responsibility for construction ad maintenance of main roads has been handled by various ministries in recent years. Soon after independence in 1956 a Roads Division, largely staffed by foreigners, was established in the Ministry of Public Works. From 1959 to 1967 technical assistance to the Division and scholarships to train Sudanese staff were provided under foreign aid programs. In 1970 the Roads Divis ion was transferred to a newly created Ministry of Transport and Communications, and in October 1971 the Division was elevated to a Department in a new Ministry of Transport (MOT). Recently, the Government made a definite change in its transport investment policy. It accorded greater importance to road improvements by increasing the road allocation in its FY1971-75 Development Plan from LSd 2 million to LSd 23 million. 24. Capital expenditures for highways have been financed mainly from foreign aid. Over the last ten years foreign agencies provided $36 million equivalent as grants to construct roads to serve the main areas of agricultural production and to commence a link between these areas and the seaport. From July 1971 to June 1972 current expenditure on roads amounted only to $84O,000 which is insufficient for adequate maintenance and betterment of the road network. Technical assistance is, therefore, being provided under the proposed project to determine suitable budget requirements for a program of highway betterment and maintenance for the five-year period now beginning. PART IV- - THE PROJECT 25. A report entitled "Appraisal of a Highway Project - Sudan" (No. PTR-117a dated July.17, 1972) is being circulated separately. A Credit and Project Summary is provided in Annex III. 26. The project was appraised in November 1971 and negotiations were held in Washington in May 1972. The Borrower's delegation consisted of Messrs. Mohamed Sanhouri Yousif, Deputy Under Secretary, Ministry of Planning and Sayed Bedawi Laz, Deputy General Manager, DWRo 27. The Project will help the Department of Roads (DOR) in the Ministry of Transport (MOT) to improve its operating efficiency and to carry out an  - 8 - effective highway betterment and maintenance program. It will also help DOR and MOT to prepare preinvestment studies for roads suitable for further lending by external agencies and to improve planning and coordination among all transport modes. 28. The project comprises: (i) provision of consulting services to the DOR for: (a) improving its organization and operations, with emphasis on a highway betterment and maintenance program; (b) identifying high priority road construction projects; and (c) carrying out feasibility studies of about 500 Em of high .priority roads identified under (b) above, followed by detailed engineering of about 350 Km of these roads; (ii) purchase of highway maintenance, workshop, and laboratory equipment; spare parts for both new and existing equipment in these categories and materials and supplies for highway betterment workshop construction; and (iii) technical assistance to the MDT in transport planning and coordination, and in staff training. Cnisulting Services to the DOR 29. Consulting services to the DOR would be provided by a qualified and experienced consulting firm for about three years in accordance with terms of reference agreed upon by the Government and the Association. These services are expected to be carried out in two phases. Under the first phase, of about one year, a team of up to 14 experts would be employed to prepare a program of highway b6tterment and maintenance for the period 1973-78, determine budget requirements for it, prepare specifications, lists and bidding documents for purchase of spare parts, equipment, and materials and supplies and advise and assist the DOR staff on emergency rehabilitation of existing maintenance equipment. The experts would review the organization =nd operations of the DOR and reccmmend necessary improvements. They would also determine the training requirements of highway staff at all levels, prepare appropriate training programs and advise on the facilities and funds required to carry out the programso Identification of high priority road construction projects, development of appropriate design standards, preparation of suitable traffic and road user regulations with recommendations regarding their enforcement and the establishment of a program of collection of highway traffic data would also be the responsibility of the consultants. 30. In the second phase of about two years, the consultants will assist the Government in implementing recommendations made by the consultants and accept- aqble to the Government and the Association. The consultants will also help in  carrying out a highway betterment and maintenance program for the period 1973- 74. Most of the Sudan's gravel roads being in the South, the betterment and maintenance program under this project would constitute an important contribution to the economic rehabilitation of this war-toxm area. 31. After the first phase of consulting services is completed, consultants will be employed for feasibility studies and detailed engineering. Feasibility studies will be made of about 500 Km of roads identified as high priority under the first phase. About 350 Km of such roads would be selected for detailed engineering and preparation of bidding documents. These items of preparatory work are expected to provide a suitable basis for further lending by external agencies, including IDA. Because the highway betterment and maintenance program to be carried out and the spare parts equipment and materials and supplies to be purchased under the project will be identified in detail by the consultants only daring project execution, signature by the Government of the contract for consulting services to the DOR for the initial stages of the project is a condition of effectiveness. Equipment, Spare Parts and Materials 32. Much of the existing DOR maintenance workshop and laboratory equipment is out of order. With spare parts and tools to be procured under the project, most of the equipment could be made operational. Rehabilitation of the existing maintenance equipment should result in an additional useful life averaging at least four years, The proposed credit also includes an amount for purchase of additional equipment for highway betterment and maintenance, based on a tentative list prepared by the Association. Consultants will identify specific needs for maintenance, workshop and laboratory equipment and establish a two to three year program to purchase them. Much of the road network is in need of emergency betterment, such as surfacing, gravelling and drainage works, to bring the roads back to the standard where routine maintenance can be resumed. Mhe project, therefore, also provides for the purchase of imported materials like steel and asphalt to carry out the highway betterment program and to construct workshops as required. Transport Planning and Coordination 33. The Government fully appreciates the need for improved planning and coordination of transport investments and has requested technical assistance in this field. The project, therefore, provides for two qualified and experienced transport experts for about two years to advise and assist the MOT in these fields and in developing an integrated transport system. Staff Training 34. The Department of Labour, with the assistance of the International Labor Organization (ILO) operates a national vocational training school at Wad Medani which has in-plant training facilities for about 24 mechanics for heavy  - 10 - earthmoving equipment and provides refresher courses for equipment operators and mechanics. The facilities can be used to train equipment operators and mechanics under the proposed project, which includes financing for four man-years for expert instructors in addition to those provided by ILO, to train a further 180 equipment operators and 80 mechanics. Project Cost, Financing and Procurement 35. The proposed project is estimated to cost $10.9 million including $1.3 million contingencies, with a foreign exchange component of $7 million. Expenditures under the project (see Annex III) would cover consulting services ($2.3 million); purchase of spares, equipment and materials ($6.8 million); and technical assistance and training ($0.5 million). Cost estimates for the consulting services, technical assistance and training are based on man-months requirsd and on costs of similar services in countries with the same local conditions as the Sudan. The costs of spare parts, equipment, materials and supplies are based on preliminary lists of require- ments drawn up by the DOR and the Association. These lists would be specifically checked by the consultants in the course of their work. 36. The proposed credit will finance the estimated foreign exchange expenditure on the project, which is 65 percent of total costs, while the Government will meet the local expenditures of $3.9 milliono New equipment and related spare parts will be procured under international competitive bidding according to Bank Group guidelines. Spare parts for existing equipment will have to be obtained from the original manufacturers and will be purchased from selected local suppliers or agents. Imported materials and supplies, mainly asphalt and steel, with a total foreign exchange cost of $480,000 will be purchased over several years in relatively small quantities as required and will, therefore, be procured through local commercial channels, using competitive bidding where possible. Under a preferential tariff arrangement with the Arab Republic of Egypt, the usual 40 percent import duty is reduced to 20 percent for asphalt and 16 percent for steel, but Egypt has not in practice been a source of supply for these materials in recent years. 37. The draft credit agreement provides for retroactive financing from July 1, 1972, although expenditures on the project in the next few months will be small. Moreover, no funds would be disbursed for equipment and materials until the Association had approved the highway betterment and maintenance programs to be prepared under the first phase of the project. (See paragraph 29 above)0 Project Execution 38. The Ministry of Transport and its Department of Roads (DOR), assisted by consultants under the project, will be responsible for carrying out the project, The DOR is headed by a General Manager who reports to the Minister of Transport* Two main sections at headquarters (Khartoum) each headed by a Deputy General Manager, are responsible for "Construction and Maintenance" and for "Projects and Administration". The DOR is well staffed at the  professional level, but staff has not been used to capacity due to lack of funds. Staff efficiency will be improved with the assistance of the consultants provided under the project. 39. The Design Section of the DOR has not been active for several years. Depending on the source of foreign aid, the design of roads constructed with foreign aid has differed from case to case. Consequently, the design standards are varied and inconsistent, and some roads have been over-designed for expected traffic, while for others the standards are outdated. The consultants will review design standards and recommend modifications where necessary. 40. At present the DOR does not have any maintenance organizations outside Khartoum, and field operations are hampered by the ad hoc assignement of professional staff and the shortage of equipment operators and mechanics. The project consultants will assist the DOR in establishing field organizations, including workshops, and in the training of suitable staff. Economic Justification 41. The benefits from purchases of equipment, spare parts, materials and supplies will be substantial. However, they are difficult to quantify because statistics are lacking and the highway betterment and maintenance programs to be carried out will be defined in detail only after the consultants have completed their studies. An evaluation has been made of possible returns from the estimated capital and recurrent costs of an assumed 7-year program of annual betterment of about 250 Km of roads and tracks and adequate maintenance on a total of 5,500 Km of the network. Experience in other countries with similar road conditions indicates that the vehicle operating costs would be redUced by about 40 percent by betterment and about 20 percent by improved maintenance. On these estimates, and conservative assumptions as to traffic volume and growth, expenditure on the road betterment and maintenance program would yield an economic rate of return of 32 percent and even on pessimistic assumptions the rate would still be 13 percent. This analysis does not include benefits beyond the assumed 7-year program due to the reorganization and strengthening of DOR, nor does it take account of additional traffic induced by the existence of better roads. In addition, the feasibility studies, detailed engineering, technical assistance and training elements of the proposed project will enable the Government to identify high priority investment projects for the transport sector and prepare future road projects suitable for financing by external agencies. PART V - LEGAL INSTRUMENTS AND AUTHORITY 42. The draft Development Credit Agreement between the Republic of the Sudan and the Association, the recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association and the text of a draft Resolution approving the proposed credit are being distributed to the Executive Directors separately. The draft Development Credit Agreement conforms substantially to the pattern of the Association's agreements for transportation development projects.  - 12 - 43. I am satisfied that the proposed Development Credit Agreement would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 44. I recommend that the Execautive Directors approve the proposed development credit. Robert S. McNamara President Attachments Washington D.C. July 19, 1972  ANNEX I THE STATUS OF BANK GROUP OPERATIONS IN THE SUDAN A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at June 30, 1972) Amount (US$ million) Credit No. Year Borrower Purpose Bank IDA. Undisbursed Loan 202 1958 Sudan Railways 39.0 Loan 258 1960 Sudan Managil Irrigation 15.5 Loan 284 1961 Sudan Roseires Irrigation 19.5 0.70 Credit 2 1961 Sudan Roseires Irrigation 13.00 0.70 Loan 440 1965 Sudan Railways 31.0 0.10 Loan 522 1968 Central Electricity and Water Corporation Power 19.0 2.10 Credit 122 1968 Sudan Education 8.50 8.30 Loan 556 1968 Sudan Mechanized Farming 5.0 2.10 Credit 311 1972 Sudan Mechanized Farming II 11.25 11.25 Total - Less Cancellations - 129.0 32.75 25.25 of which has been repaid to Bank and others 30.0 .10 Total now outstanding 99.0 32.65 Amount sold: 5.7 of which has been repaid 5.7 Total now held by Bank and IDA 99.0 32.65 Total undisbursed 5.1 20.15 25.25 B. STATEMENT OF IFC INVESTMENTS (as at June 30, 1972) (Amount in US$ Million) Year Obligor Type of Business Loan Equity Total 1964 Khartoum Spinning & and Weaving Co. Textiles 1.87 0.34 2.21 1972 Total gross commit- ments Less cancellations, terminations, repay- ments and sales 1.61 0.07 1.68 Total commitments now held by IFC 0.26 0.27 0.53 Total Undisbursed  ANNEX I Page 2 C. PROJECTS IN EXECUTION The Bank and IDA have so far made six loans and three credits to the Sudan. Disbursements are now in progress for four projects, the present status of which are as follows: Loan 440-SU (Railways) The 1965 loan, mainly for track relaying and rolling stock replace- ment was almost fully disbursed as of June 30, 1972. Unsettled political conditions and the closure of the Suez led to project delays and slower than expected increase in traffic. Although efficiency has deteriorated partly due to technical defects with new locomotives, the intended rehabilitation has been achieved and agreement has been reached with the Government on the need for technical assistance designed to improve efficiency. Loan 522-SU (Power) The 1968 loan to the Central Electricity and Water Corporation (CEWC), a semi-autonomous government agency, was for a power project comprising a 90 MW hydroelectric powerhouse at Roseires, related transmission lines and substations, as well as management consulting services. The project is now physically completed, but accounting and administrative inadequacies of the CEWC continue to require special attention of supervision missions. Credit 122-SU (Education) Changes in the original school sites, modifications in the general educational system and delays in commencing construction of the secondary schools have resulted in very slow progress. However, the Ministry of Education is now devoting more attention to the project and the rate of disbursement is expected to increase rapidly after the award of civil works contracts within the next few months. Loan 556-SU (Mechanized Farming) The original project to establish about 140 farms of 1000 feddans each (1 feddan = 1.03 acres) was completed in July 1971, one year ahead of schedule and with substantial savings. Encouraged by this success the area of the original project was extended by 75,000 feddans and a second mechanized farming project covering a further 420,000 feddans was approved for which Credit 311-SU was signed on June 12, 1972. This credit is not yet effective.  ANNEX II Form No . 81.02 WORLD BANK GROUP (5_-72) COUNTRY DA5TA COUNT.Y, THlE SUDANI ARYA s 2.5 1c., POPULATION: 15.9 million (Tsar) 1971 DLNSITYs 6.3 per km 2 Rats of rovth 2.5 % (froml96d to 1971 )Th1 *d 19.6 per km of esabl* lan, POPULATroN CIRRACTLPISTICS, HEALTH. Crude oimrt Rate (per ,CO) 51.7 (year) (1955-1956) -Poplation per phyeician 14,599 (year) (1970) Crude Death Rote (per 1.ooo) 33.5 (year) (1955-1956) PplUnprhsia al25ya)(90 Infant Mlortality (per 1,000 live births) 96 (pear) (1955-1956)Poutinprh ptabel25yr) 170 iNCOkll DISTRIBUTIO%I DISTRIBUTIOR OF LAND) OlXERSHIP; (All lansd oswned by the Govermnent.) I of natclo..l Income, Iowest q.Intlie - 7. of land ..wned by top IOL -wers higheat q.lntlle - . 7 of lend owned by a-sllest 107 .-orner ACCESS TO POTARLE AELM (7. of pop.latton) ACCESS TO ELECTRICITY: (7. of popolucton) 10 pnrcm:'t Ulrban Urban Rnrol Rural ?ITJT9.T!O'1 GNP PERt CAPITA: $1 (year~) 1969 EDUCATIO3: Calorie int-ake as % of rsquireoents -(year) Adult literacy rote 19 percent. (pear)i969 Per capita protein intaks (arraces) - (yeor) Primary school enrolment (%) 14 (year) 1970 GROSS NATIV:AL P?IODnT (year): 1969 ANNUAL RATE OF GOY ('.comniant crices): GIl? at ,rkret prices I 1A.-b 10570(UstYer Gross lmnnte.ten t 21.14 14..7 Gross National Savings 210 12.7 Current Account Balans:e 22 1.3 Escports of Goods, NFS 297 17.9 Imports of Goods, NF5 312 19.9 9DA'c'TIVITYR IN v, l969 Value Addnd Labor F-rce Value Nddel Par Worker (US $ Aillion) S M7lIns A___ (US $1Aot natdonal average Agriculture mdo. subsistence 517 36 5.0 72 103 55 Industry 123 a 0.3 5 4,10 219 S,rvices 597 4.1 1.3 19 4.59 24.5 Total/Averaga 1,237 85 6.6 96 187 PUBLIC Fr4NARIRY, IN (year): P! 1971 All Goverrivente Centra)fll??lF#tl Governmen,t Le .a4".1% A of lIP average La million 5 of GO? average (meount) % of flop latL 'nrne pears (amount) %of GOP last three pear& Current Recolpts 179.7 -164.4. current Ex7enditures (incl. transfers) 174..6 -157.8-- C,rrent Surplun/Deficit ()5.1 -6.6-- Capital Expenditures 17.2 17.2 - Externa.l Asnistance (net) -0.1 -0.1 PRICES AND C.RMIT (La million) (is million) end or pear: Genera13Pri0ce mndcx Bank Credlit to Public Sector Rank CredIt to Private Sector Lnd.. (ib-O) 7 h e(aemunt) one6. lane 1963 6 2. (munt) Change Juna 1969 - - -74.1 19.5 61.1 0.1 June 1973 0 96.7 30.5 60.3 -1.1. (month) 1970 (Jone) - - 110.1. 14.2' 73.1 21.2 (montld 1971 (Jane)- - BALANICE OF PAVYINTS IN (last three years):; PT 1969 - P 1971 ITICH{ANDISE EXPORTS (Averaqe of the lest three years): FY 1969 - P 1971 (millions US )(SMl-.) % Exports of Ooods, NFS 293.9 316.8 31.1. 7 (5-6 major coorodities) 252 8a Inparts of Gools., NFlv 314.9 313.1. 396.9 y4 1.2 Resource Gao (deficit -)21.0 31.4 -52.2 all oLher commodities Interest payments (not) - - - Workers' Remittances- - Other Factor Payments & interost paymnents -12.6 -14.6 -12.6 Net Transfers (net) - - -0.9 Bslonce on Current Account -336 -11.2 -6. TO tal 286 100 Direct Foreign Investnent - - - Medium' and Lon1-term Loans (not) 17.2 17.2 -0.3TMLDB NDCIMR3, (er:17 Disbursenents (30.) (37.6) (31.9) LTDA E?O RlNS 1 po)17 kmortization (13.2) (20.1.) (32.1) cs min.) Official Grants - - H edium end Long-term Credits, Public 2o3.9 Other Capital (not) -4.6 7.9 . Non-Guaranteed Private MO.T Increase in Official Reserves 21.0 -13.8 60.6b3. an-Mc r ouaOe) Total Outstanding and Disbursed23. All other itens Cross Reserves of convertible foreign 1.8.2 39.0 27.6 DEBT SERtVICE RATIO (year): TX 1971 10.5 percent Not Reserves exchange -15.2 -1.4. .62.o IBRD/IDA LENDING,:O DStlSllN 31. 1970 (5 min.) IBRID rDA Outstanding and Disbursed 91.2 12.3 U),diaborsed 13.1. 9.2 -Outstansding ind. Undlsbureed 104..6 21.5 Official RAte Of Exchange: US $1.00 * 34..S piasters Date: May 31, 1972 La 1.00 -US $ 2.372 Departesots__Eastemn Africa Effective Rate of Exchange La 1.00 - .5.$2.50 for all transactions except for the proceeds from cotton and gum exports which are converted at the official eachange rate..   ANNEX III THE DEMOCRATIC REPUBLIC OF THE SUDAN HIGHWAY PROJECT CREDITT AND PROJECT SUMMARY Borrower: Democratic Republic of the Sudan Amount: US$7.0 million equivalent Terms: Standard IDA terms Project Description: The proposed project comprises (i) assistance to the Department of Roads (DOR) in improving its organization and operations with emphasis on a highway betterment and maintenance program, and purchases of related equipment spares and materials; (ii) feasibility studies of about 500 ka of road followed by about 350 km detailed engineering; and (iii) technical assistance to the Ministry of Transport in transport planning and training of DOR staff. Estimated Cost: % US$ Foreign (million) Exchange Local Foreign Total Component I. Consulting Services: (a) To the DOR 0.3 0.9 1.2 75 (b) For feasibility studies and detailed engi- neering 0.2 0.9 1.1 80 Sub-total I 0.5 1.8 2.3 II. Purchase of: (a) Spares for exist- ing equipnent 0.5 o.5 1.0 50 (b) New Equipment (including spares) 2.0 3.0 5.0 60 (c) Materials and Supplies 0.3 0.4 0.8 60 Sub-total II 2.8 3.9 6.8  ANNEX III Page 2 US$ Foreign (million) Exchange Local Foreign Total Component III. Technical Assistance and Training 0.1 0.4 0.5 75 IV. Contingency Allow- ances of Items I-1ll./ 0.5 0.8 1.3 Total I - IV 3.9 7.0 10.9 65 1/ 10% physical and 10% price on I and III and 10% price on II. Financing Plan: All foreign exchange cost to be financed by IDA, all local exchange by Government. Estimated Disbursements: (US$ million) 1972 1973 1974 1975 1976 0.4 1.8 2.1 2.1 o.6 Procurement Arrangements: Procurement of new equipment and related spares (totalling about US$6.6 million equivalent) would be by international competitive bidding. Purchase of materials and supplies ($1.0 million equivalent) would be through local commercial channels, using local competitive bidding where possible. Consulting services and technical assistance ($3.3 million equivalent) would be procured on the basis of an evaluation by Government and Bank of technical proposals from interested consulting firms. Consultants: Consultants would be employed to (i) assist in reorganizing the DOR, (ii) formulate and assist in implementing a pro- gram of highway betterment and maintenance, including assistance in identifying details of required purchases, (iii) carry out feasibility studies of about 500 km of road followed by detailed engineering of about 350 km; and (iv) provide technical assistance to the Ministry of Transport in transport planning and training for DOR staff. Rate of Return: Economic rate of return is estimated at about 30%, and the most likely benefit/cost ratio is 1:6. Under very pessimistic assumptions the economic return would be about 13% and the benefit/cost ratio about 1:1. Appraisal Report: No. PTR-117a dated July 17, 1972.  ARAB REPUBLIC - SUDAN OF EGYPT J MAIN TRANSPORTATION -. . INFRASTRUCTURE Rilv er service -f . i.................. Roilways sr.< f uo t Airport * *N OR T HuE R N * aSudo ____________ ~~~~~~~~~~~~~~~~D-ngolo Bituminous surfoced roads Roads and tracks, all season .